April 17 (Bloomberg) -- Production at U.S. factories
dropped in March for the first time in four months as the
industry cooled following the strongest surge in three decades.

Manufacturing, which makes up about 75 percent of
industrial output, decreased 0.2 percent last month as appliance
and furniture makers cut back, data from the Federal Reserve
showed today in Washington. The decline followed a revised 3.4
percent gain from December through February that marked the
biggest three-month jump since March 1984.

The rebound in manufacturing that helped the world’s
largest economy climb out of the recession in June 2009 may now
be giving way to gains among service industries, including
retailers, as consumer spending grows. Another report showed
builders broke ground on fewer houses than forecast last month,
a sign residential real estate continues to lag behind.

“We’ve had a very strong run -- manufacturing just sort of
plateaued a little bit here in March,” said Omair Sharif, a
U.S. economist at RBS Securities Inc. in Stamford, Connecticut,
who is the most-accurate forecaster of industrial production for
the two years ended February, according to data compiled by
Bloomberg. “The services sector has begun to take off and is
more of the leader, but manufacturing is continuing to
contribute.”

Stock benchmark indexes posted the biggest rally in a month
as gains in Spain’s bonds eased concern about Europe’s debt
crisis. The Standard & Poor’s 500 Index rose 1.6 percent to
1,390.78 at the 4 p.m. close in New York.

Europe, Asia

Elsewhere, German investor confidence unexpectedly rose to
a two-year high in April, suggesting Europe’s largest economy
can weather the region’s debt crisis. In India, the nation’s
central bank reduced its benchmark interest rate by a greater-than-projected half a percentage point as concern over the
outlook for growth trumped inflation fears.

The International Monetary Fund raised its global growth
forecast for the first time in more than a year, with the U.S.
boosting the outlook while recent improvements remain “very
fragile.” The world economy will expand 3.5 percent this year,
compared with a January projection of 3.3 percent, the
Washington-based IMF said today in its World Economic Outlook.

The Fed’s report showed total production, which also
included utilities and mines, was unchanged in March for a
second month. The median projection of 82 economists surveyed by
Bloomberg News called for a 0.3 percent increase. Estimates
ranged from a decline of 0.6 percent to a gain of 0.7 percent.

Homebuilding Decrease

A report from the Commerce Department showed housing starts
fell 5.8 percent in March to a 654,000 annual rate, less than
the lowest estimate of economists surveyed by Bloomberg and the
slowest since October. The slump was led by the volatile
multifamily category, which at the same time showed a jump in
permits, a proxy for future construction.

While warmer weather may have spurred home construction at
the beginning of 2012, a competing supply of cheap existing
properties may be steering potential buyers away from purchasing
a new home. That means home construction may not help boost the
economy in 2012.

“Housing continues to bump along the bottom,” said Jacob
Oubina, a senior U.S. economist at RBC Capital Markets LLC in
New York. “The best we can hope from housing over the next
couple years is that it won’t subtract from growth. The numbers
in the past few months were decidedly impacted by a much milder
winter, so a significant portion of construction was pulled
forward.”

Auto Making

The report on industrial production showed auto making
climbed 0.6 percent in March after a 0.8 percent rise the prior
month. Cars last quarter sold at the fastest pace in four years,
according to industry data.

Production of business equipment climbed 0.2 percent after
a 1.3 percent jump, indicating capital investment continues to
drive manufacturing.

Capacity utilization, which measures the amount of a plant
in use, was little changed at 78.6 percent last month after 78.7
percent in February. It has averaged about 81 percent since
records began in 1967.

The Fed last week said the economy grew in all 12 of its
regions from mid-February through late March as manufacturing,
hiring and retail sales showed signs of strength in the face of
higher fuel prices.

Beige Book

Manufacturers mentioned gains in automotive and high-technology industries, the Fed said on April 11 in its Beige
Book business survey, published two weeks before the Federal
Open Market Committee meets to set monetary policy. The firms
“expressed optimism about near-term growth prospects, but they
are somewhat concerned about rising petroleum prices,” the Fed
said in the report.

Companies like Reliance Steel & Aluminum Co., North
America’s largest metals service center, are benefiting from
increased demand and rising commodity prices.

“Demand was somewhat stronger than we had anticipated and
a stronger pricing environment allowed us to modestly improve
our gross profit margins,” David Hannah, chief executive
officer of the Los Angeles-based firm, said yesterday in a
statement.

Retail sales rose more than forecast in March as Americans
snapped up everything from cars and furniture to clothes and
electronics, according to Commerce Department figures issued
yesterday. The 0.8 percent gain was almost three times as large
as projected and followed a 1 percent advance in February.